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Interview with Dr. Ivan Petrov, President of FIATA

The president of the International Federation of Freight Forwarders Associations (FIATA), Dr. Ivan Petrov, spoke to Container News about critical issues in the freight forwarding community, such as the vertical integration of the ocean carriers and liners' attempts to push forwarders into the spot markets.

In an interview with Antonis Karamalegkos, managing editor of Container News, Dr. Ivan Petrov expressed his views on current challenges in the container shipping industry, such as high container rates and global port congestion, while he also commented on the progress of the digitalisation and decarbonisation of the sector.

  • During the last two years, we have noticed a tremendous increase in freight rates. What is your view on it? Do you believe that prices will return to pre-pandemic levels?

Thank you for this pertinent question, freight rates have risen considerably at a time when the world needs some predictability amidst the pandemic which rages on.

We foresee more price stability in 2023 as there will be increased capacity deployed by carriers and also the various regulatory interventions across the world, such as the US Ocean Shipping Reform Act 2022, on which FIATA recently published a position paper, and the discussions various countries like China, France and others have had with carriers about prices and deployment of capacity. While we expect prices to come down, they may not return fully to pre-pandemic levels.

A recent study by OECD-ITF and MDS Transmodal notes that contract-based freight rates have gone up by 2.9 times and spot rates 6 times compared to pre-pandemic values. The impact felt by consumers from the increase in freight rates would lead to an inflation of 1.5% as published by UNCTAD in November 2021. The UNCTAD Head of Trade Logistics Branch, Division on Technology and Logistics noted recently that this will now be more intense as the figures were calculated before the 8-9% global inflation which we are seeing now. We hope to get more in-depth information to present to regulators to stand up for shippers, forwarders and consumers during our dedicated panel at the 2022 FIATA World Congress in Busan, Korea.

FIATA and its working group on sea transport are vigilant, active and committed to facilitating expedited, cost-effective multimodal transport solutions to do our bit to keep supply chains agile and fit for purpose. FIATA’s vision is well captured in its Maritime Discussion Paper published in June 2022.

  • We see more and more shipping companies offering services that used to be provided by freight forwarders, such as door-to-door shipments, LCL services, cargo insurance, etc. What is your opinion about that trend and what actions should freight forwarders take?

Vertical integration by ocean carriers is a sensitive issue. At the Maritime Webinar Series which concluded in May during the FIATA Annual headquarters meeting in Geneva, Commissioner Dye of the FMC, and her colleagues from the European Commission and China all opined that in principle, there is nothing wrong with vertical integration. The key information that was overlooked here was that ocean carriers are only able to do this because of the tax breaks, alliances, and consortia they share through exemptions from competition laws. Can they continue to do so if they have no regulatory support and compete on equal footing with freight forwarders?

It also raises the question of how shipping lines will limit their abuse of dominant positions when they act as both a service provider and competitor of freight forwarders. FIATA has been conducting a global survey of all the instances where its forwarders were treated prejudicially and discriminated on the basis of carrier versus merchant haulage.

Mr. Henrich Morch of the EU commission noted there was no Google in shipping, forwarders who aggregate cargo themselves face challenges to negotiate mutually enforceable terms with ocean carriers, individual shippers will simply be left to their mercy if this perpetuates with the consumer paying an unfairly high price ultimately. Regulators globally need to ask themselves if click-wrap, take it or leave it contracts are what they envision for their shippers, because that is what we get with companies like Google.

That said, FIATA applauds the US-FMC’s recognition that contracts on mutually enforceable terms should define the new normal post-pandemic. Countries should ensure their consumer welfare and enable the competitiveness of their exports by following the American example.

  • We have noticed that several shipping companies are offering freight rates via their websites/applications/platforms without any tier/grading. With freight rates on the same level for all the parties, the profit of the freight forwarding companies is expected to shrink. What is your view on it and how should the freight forwarding community react?

Yes, ocean liners are attempting to push forwarders into the spot markets by reneging on contracted rates and making vessel space scarce. It is definitely a matter of concern for the industry. However, the value of a forwarder goes well beyond negotiating a predictable reduced rate with ocean carriers. Forwarders act as customs brokers, handle special cargo and are able to continuously monitor the best offerings through not only multiple ocean liners, but also across various modes of transport.

It is true that very large companies can set up such functions in-house, but such companies can even bypass ocean carriers and charter their own vessels, as the likes of IKEA or Dollar Tree did during this period of unjustified price hikes and disruptions. But how can SMEs, the majority being located in countries where ocean carriers do not even call, access the global supply chain?

Forwarders have remained agile through many crises in the past and we will collectively work to address this one while ensuring that no one is left behind, customising our services to the individual needs and capacities of our customers.

  • The digitalisation of the shipping industry is an ongoing process. How do you believe that new technologies, like blockchain, will affect the shipping industry and, especially, the freight forwarding sector?

As a part of the implementation of the reset programme in 2020, with a new FIATA Director General joining, FIATA launched its digital strategy involving several projects to promote a freight forwarder trusted network, share and distribute standards, and foster interoperability and data analysis. Two initial projects were launched, namely: the trusted digital members registry, and the digital document library. FIATA’s first digital document, the eFBL (paperless FIATA Bill of Lading) launched earlier this year, uses blockchain to ensure traceability and authenticity. FIATA is also involved with DCSA, BIMCO, ICC and SWIFT in the FIT Alliance, as well as other interested key supply chain actors, to ensure interoperability between various eBL platforms. Our membership, particularly in Latin America, Europe and Asia, has been quick to get licensed to distribute these digital documents and the response from the Transport Managing System (TMS) companies is very positive.

  • The service reliability of the container carriers has been at historic low levels in the last several months. Could FIATA assist in this important issue?

The Drewry World Container Index highlighted that spot rates at the end of 2021 were approximately six times higher than two years earlier. Predictability, which is the foundation for strong trade, has been showing cracks because of unfair practices by shipping lines. In addition to this, as pointed out by a recent report by OECD-ITF and MDS Transmodal, there has been a significant shift in carrier capacity to the Trans-Pacific routes which were the most profitable for carriers. This has left others behind as there is nothing to compel equitable distribution of capacity and regular calls at various ports around the world.

The alliances and consortia who exacerbate such issues are heavily facilitated by the EU-CBER, which is coming up for review soon. FIATA, along with similar organisations representing various actors across the supply chain, have been calling upon the EU Commission to commence the review to reform the EU-CBER with more regulatory oversight as opposed to a carte blanche exemption.

As a part of its global approach, FIATA has been engaged with competition regulators around the globe and is studying best practices and making policy recommendations for a harmonised regulatory approach worldwide.

  • One of the current serious challenges in the shipping industry is port congestion, which has heavily affected several ports, especially in the US West Coast and China, in recent months. How could FIATA help with this issue?

FIATA regularly engages with its members with best practices for its members. Dwell times are detrimental to all actors in the supply chains. In this regard, the US-FMC has been active with rulemaking on detention and demurrage. FIATA has been actively engaged with them and has its own publication, the D & D toolkit to help its members. When the US passed the Ocean Shipping Reform Act of 2022, FIATA published a guidance paper covering it, the first of its kind, explaining the law and its benefits to the forwarding community. As noted in this publication and the OSRA, there will be a lot of work done in the US to develop hinterland infrastructure and FIATA will participate in consultations on these topics and will actively support its US-based member association.

Looking at China, their senior level regulators participated in the May FIATA Headquarters meeting noting the efforts to increase rail connectivity to supplement the reduced capacity of ocean carriers who always divert towards the most profitable lanes. China has managed to increase its rail capacity to Europe by 50% during this pandemic, reaching 12,406 freight trains. These will pass through landlocked countries and help them also access the supply chain and aid their development.

FIATA, uniquely positioned as a global organisation with a multimodal focus, engages its members to explore the widest array of transport options through its working groups on road, rail and maritime routes, and the airfreight institute focusing on integrating sustainability, technology and standardisation across these sectors.

  • What is the role of FIATA in the decarbonisation process of the shipping industry? What actions have you taken in this direction?

FIATA has been a consistent and regular advocate for decarbonisation by shipping lines. Some FIATA member companies have been engaged with shipping lines to explore the use of advanced biofuels and low sulphur fuels. Key challenges we face with respect to decarbonisation are many, a forwarder acting as an agent of a shipper is limited by the budget and instructions of the shipper when they explore transport options. A forwarder can only go as far as the shipper is willing to go. That said, the forwarder should also be able to provide the shipper with all relevant information needed to make the most appropriate choice for themselves.

Additionally, shipping lines have been offering these green alternatives at a mark-up. To justify this, we will need more transparency about such additional charges, and going green should be a shared responsibility and not an additional source of revenue which detention and demurrage charges seem to have become. FIATA welcomes regulatory insight into all such charges to ensure they are fit for purpose. Finally, given its global membership having multinational conglomerates to the smallest of SMEs, FIATA cannot have a one size fits all approach to sustainable practices. Therefore, we follow the forwarder’s way, our members already economise on time spent, explore sustainable routes with the shortest, least number of transits, taking necessary precautions and expending the minimum resources to move products globally.

Antonis Karamalegkos
Managing Editor

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